Bulletin

Senate panel clears energy tax package

WilliamL. Watts

WASHINGTON (MarketWatch) -- Big oil and gas firms would see taxes rise to help offset tax incentives for alternative- and renewable-energy producers under a bill approved Tuesday by the Senate Finance Committee.

The package, which would provide $32.1 billion in extended or new tax breaks over the next decade, was backed in a 15-5 vote, and is expected to be added to a wide-ranging energy bill under debate on the Senate floor.

"This combination of incentives and offsets provides a new and proper balance to our tax code's treatment of energy issues," said Finance Committee Chairman Max Baucus, D-Mont. "With the right emphasis on renewable fuels and alternative energy, we can turn the corner toward energy independence for our country."

Oil and gas producers said the measure would undercut energy security by penalizing domestic fossil-fuel production.

"In summary, the energy lost by taxing the U.S. oil and gas industry would outweigh any potential energy gained by developing alternatives," said the American Petroleum Institute, a trade group that represents major energy firms, in a statement. "America doesn't have the luxury to penalize one energy source at the expense of another."

The bill includes a five-year extension of the clean-energy production tax credit, as well as credits aimed at encouraging development of "clean coal" technology and incentives aimed at encouraging solar, wind and other projects.

On the other side of the ledger, the bill would offset expected lost revenues by repealing the deduction for domestic manufacturing activities by major oil and gas companies, while leaving the deduction in place for smaller producers, according to a summary of the bill provided by the committee. The provision is projected to raise $9.4 billion over the next decade.

Revenue raisers also include a "severance tax" on oil and natural gas produced from leased federal lands in the Gulf of Mexico, a measure designed to collect the more than $10 billion in leasing revenues left on the table as a result of errors in leasing contracts negotiated by the Interior Department in 1998 and 1999. Oil companies would receive a credit for royalties paid. The measure is expected to raise nearly $10.7 billion over 10 years.

Senate targets OPEC

Meanwhile, debate on the energy bill continued on the Senate floor, with the chamber easily approving an amendment offered by Sen. Herb Kohl, D-Wis., that would allow the United States to sue the Organization of Petroleum Exporting Countries, or OPEC, under U.S. antitrust laws.

The Senate voted 70-23 to approve the amendment. The House defied a veto threat by President Bush to pass similar stand-alone legislation by a seemingly veto-proof margin earlier this year.

Notwithstanding diplomatic and other considerations, the hands of U.S. trustbusters have been tied since the 1970s, when a federal court threw out a private lawsuit by the International Association of Machinists union that accused the 11-nation cartel of price fixing.

The court ruled that OPEC was protected by the sovereign immunity doctrine, which holds that the courts of one sovereign nation have no basis to entertain suits against another nation.

The case next moved on to the Court of Appeals for the Ninth Circuit. The appeals court didn't reach the sovereign immunity conclusion, but instead ruled that OPEC was immune under the "act of state" doctrine. The ramifications were essentially the same, however, since the act of state doctrine "declares that a United States court will not adjudicate a politically sensitive dispute which would require the court to judge the legality of the sovereign act of a foreign state."

"We have long decried OPEC, but, sadly, no one in government has yet tried to take any action," Kohl said. "Our amendment will, for the first time, establish clearly and plainly that when a group of competing oil producers like the OPEC nations act together to restrict supply or set prices, they are violating U.S. law."

"This is terrible law and a terrible precedent to suggest we are going to allow foreign governments to be dragged into our court system," Bingaman said. If the United States does so, "they can bring our government into their courts and do the same thing."

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